ACCA SBR ^INT Syllabus D. Financial Statements of Groups entities - Foreign exchange - subsidiaries - Notes ^{2 / 3}

Basic Idea: We need to translate the Foreign Sub into the Group Currency

Exchange rates to be used:

1. Assets and Liabilities - Year End Rate

2. Income Statement - Average Rate

3. All forex differences go to the OCI and Reserves (Translation Reserve)

Equity Table - Working

First simply do this in the FOREIGN currency (ignore the post acquisition column) and then translate it at the following rates:

• At Year End column - Year End Rate

• At Acquisition column - Acquisition Rate

• Now do the post-acquisition column - using the translated figures

Foreign Exchange Translation Reserve

How to calculate the Translation differences:

This can be calculated as follows:

Translation Reserve

Goodwill - Working

Goodwill (in foreign currency)

• Step 1: Work Goodwill in the FOREIGN currency

• Step 2: Translate the final figure at Acquisition Rate

• Step 3: Translate any impairment at the average rate for when it happened

• Step 4: Translate final goodwill figure at the Year End Rate (This is what shows on the SFP)

• Step 5: Any balancing difference goes to the OCI and Translation reserve in Equity 

  (nb. The NCI also get their share if using the FV method)

Step 1:Take 17,000 and translate it at the Acquisition rate

e.g. 17,000 x 0.5 = $8,500

Step 2:No Impairment so no translation of it needed

Step 3:Now take the 17,000 and translate it at the Year-end rate.

e.g. 17,000 x 0.6 = $10,200

The $10,200 is shown in the group SFP and the gain of $1,700 is taken to OCI and the Translation Reserve

P acquired 80% S @ start of year. At Acquisition S’s Land had a FV 4,000 pintos higher than book value
Proportionate NCI method

Exchange rates (Pinto:$)

Last year end 5.5

This year end 5

Average for year 5.2

Translate Goodwill

1. Step 1: At Acquisition Rate: 3,240 / 5.5 = 589

2. Step 2: At Year End Rate: 3,240 / 5 = 648

3. Forex Gain to Translation Reserve and NCI of (648-589) = 59

Final Answer

Don’t forget to translate all of S’s NA @ closing rate.